David Santschi, CEO TrimTabs, reflects on how he sees December unfolding:
We wrote a month ago that we would be watching to see if any developed market central bank officials would start making more dovish noises in the wake of October’s stock and bond sell-off. Sure enough, both Federal Reserve Chairman Jerome Powell and Vice Chairman Richard Clarida recently stressed how the federal funds rate is already close to “neutral.” Equity traders seem far more heartened by these comments than bond traders, and we will be watching to see if more soothing words or even a slower pace of rate hikes is adequate to stabilize the markets as the Fed continues to drain $50 billion per month from the financial system and the European Central Bank is set to stop expanding its balance sheet.
Retail investors have strongly favored bonds over stocks since the bull market began despite persistently low bond yields. From 2009 through 2017, bond mutual funds took in a staggering $1.34 trillion, while equity mutual funds shed $632 billion. But sentiment has shifted dramatically this autumn as bond prices have continued to drop. Bond mutual funds lost $64 billion in October and November, the biggest two-month outflow since mid-2013. We will be watching to see if mom and pop keep paring their bond holdings.
We expect U.S. economic growth to slow in the coming months. The TrimTabs Macroeconomic Index, a proprietary composite index of leading macroeconomic indicators, has been drifting lower for three months and was flat in the past six months. Also, wage and salary growth based on U.S. Treasury tax collections has been trending lower in the past year.